* Panic selling hits U.S., European, Asia bourses
* MSCI world equity index sees five-year low
* Dash for cash even hits government bonds
* Dollar rises on scramble for hard currency
(Recasts lead, updates prices)
By Pedro Nicolaci da Costa
NEW YORK, Oct 10 (Reuters) - Global stocks dove head first
to five-year lows on Friday at the end of a brutal week as even
the traditional safe-havens of gold and government bonds
suffered as fear-stricken investors sought refuge in cash.
U.S. stock markets recouped a good portion of their losses
late in the day, as investors looked to an imminent meeting of
Group of Seven finance ministers for a policy response to the
deepening global credit crisis.
The dollar rose to a 15-month high against a basket of
major currencies as investors scrambled for cash preferably in
the world's reserve currency. The euro capped its worst
two-week period against the collar since the introduction of
the single currency in 1999.
Oil fell below $80 for the first time in a year and gold
slid.
"It's total panic. People are so scared that they are
looking to liquidate everything that has cash value and to stay
away from everything," said Bruce Dunn, vice president of
trading at New Jersey-based Auramet Trading.
In U.S. equities, the Dow Jones slid as much as 8 percent
to break below 8,000 for the first time since April 1, 2003,
before paring losses to close down 1.5 percent. A late pop in
technology shares helped the Nasdaq eke out its first gain of
the month on Friday.
The broad S&P index had its worst week ever, while the Dow
was down 18 percent for the week.
"The new lows we've seen in stock markets this week are the
result of panic selling," said Joost van Leenders, asset
allocation specialist at Fortis Investments.
The Dow Jones industrial average <> finished the day
down 128.00 points, or 1.49 percent, at 8,451.19. The Standard
& Poor's 500 Index <.SPX> was down 10.70 points, or 1.18
percent, at 899.22. The Nasdaq Composite Index <> managed
to squeak 4.39 points higher to 1,649.51.
Morgan Stanley <MS.N> ,the No. 2 independent investment
bank, plunged 22.3 percent on doubts that a planned $9 billion
cash injection from Japan's Mitsubishi UFJ Financial Group Inc
would be enough to enable it to ride out the current crisis.
European shares closed out their worst week ever, with the
pan-European FTSEuroFirst 300 index <> shedding 22
percent for the week after closing down 7.6 percent. The
FTSEurofirst 300 closed at 851.23 points, its lowest close
since July 2, 2003.
The DJ Stoxx European bank index <.SX7P> fell 10.6 percent,
with Royal Bank of Scotland <RBS.L> down more than 20 percent
while Credit Suisse <CGSN.VX> and Deutsche Bank <DBKGn.DE> lost
over 16 percent each.
The MSCI world equity index <.MSCIEF> fell more than 4.0
percent at one point to a five-year low, losing a fifth of its
value this month alone. The index has lost 43 percent since
January, on track for its worst yearly performance in 20
years.
In U.S. government bonds, only short-term Treasury bills,
which are considered pretty much a cash equivalent, were able
to catch a bid.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
trading 24/32 lower in price for a yield of 3.88 percent from
3.78 percent late Thursday. The only buying of debt was on the
very short end of the Treasury curve, where one-month T-bill
yields were trading all the way down near 0.07 percent.
"We are not used to seeing stocks implode and Treasuries
sell off," said Josh Stiles, senior bond strategist at
IDEAglobal. "People are saying they don't even want to be in
Treasuries now, they need the cash."
The U.S. dollar rose as investors moved out of riskier
markets. Earlier the flight-to-safety sent the yen to a more
than six-month high against the U.S. dollar and a three-year
peak versus the euro. The Japanese currency also rose sharply
against higher-yielding units such as the Australian and New
Zealand dollars, as carry trades were unwound.
"As long as markets remain risk averse to this degree, it
is difficult to see the U.S. dollar making a material reversal
despite many of the issues currently gripping global markets
being home grown," said Dustin Reid, senior currency strategist
at RBS Global Banking & Markets in Chicago.
Tensions persisted in the money market, where the cost of
borrowing dollars for three months rose to 4.81875 percent at
the fixing in London.
In foreign exchange, increased risk aversion left the yen
as the currency of choice, with the euro earlier falling to a
three-year low of 132.80 yen and the dollar hitting a
6-1/2-month low of 97.92 yen.
In New York, the Intercontinental Exchange's U.S. dollar
index <.DXY> ,which tracks the value of the greenback against a
basket of six currencies, was up 1.22 percent at 82.422, after
rising as high as 82.223, the strongest level since June 2007.
The euro fell nearly 1.0 percent against the dollar at
$1.3468.
Fears about Britain's vulnerability to the financial crisis
sent the pound tumbling to a five-year low of $1.6802.
U.S. crude oil fell slumped 8.9 percent to settle at
$77.70.
Gold prices slid as the equities rout sparked a sell-off in
commodities. Spot gold was down 1.8 percent at $870 an ounce on
the rally in the dollar and profit-taking.
G7 TO THE RESCUE?
Investors are looking to the weekend's meeting of leaders
from the Group of Seven major industrial nations. However,
hopes for a comprehensive deal to help to solve the crisis were
fading fast.
"It is not clear we will see much from the G7 meeting and
this will probably keep risk appetite under pressure," said Rob
Minikin, senior currency strategist at Standard Chartered.
Coordinated interest rate cuts by the Federal Reserve and
other major central banks this week failed to relieve investor
fears that the freeze in credit markets will damage banks
further and provoke a deep recession around the world.
"Essentially we're flying blind. No-one has a clue what's
going on," DZ Bank currency strategist Sonja Marten said. "The
uncertainty is too great and volatility is incredible. It's a
question of market confidence and somehow we're going to have
to get it back."
Earlier Friday Europe and Asia saw panic selling of stocks
while oil prices fell to a one-year low as fears grew
policymakers are not making enough efforts to contain the
financial crisis.
Equity trading in Russia, Iceland, Romania, Ukraine and
Indonesia was halted .Emerging stocks fell nearly 5 percent to
a fresh three-year low.
(Additional reporting by Ellis Mnyandu, Kristina Cooke and
Chris Reese in New York and Steve Slater, Rebekah Curtis and
Jessica Mortimer in London; Editing by Leslie Adler)
